Iran: Saudis not compensating If Tehran sanctioned

December 14, 2011 - 9:15 AM
Austria OPEC Meeting

Iran's Minister of Petroleum and President of the Conference Rostam Ghasemi speaks to journalists prior to the start of the meeting of the Organization of the Petroleum Exporting Countries, OPEC, at their headquarters in Vienna, Austria, Wednesday, Dec. 14, 2011. (AP Photo/Ronald Zak)

VIENNA (AP) — Iran's oil minister said Wednesday that his Saudi counterpart had agreed not to up crude production to replace Iranian oil in case an international embargo on Iranian oil impacts Tehran's ability to sell its petroleum.

Rostam Ghasemi spoke outside of an Organization of Petroleum Exporting Countries meeting. As those talks broke for lunch a senior member of Ghasemi's delegation said OPEC oil ministers had agreed to keep present production at around 30 million barrels a day. He asked for anonymity because he wasn't authorized to discuss confidential information with the media.

Ghasemi, the minister, said Saudi oil minister Ali Naimi "rejects" replacing Iranian crude if Tehran faces oil sanctions over its refusal to stop activities that could be used to make nuclear arms.

The U.S. is reportedly seeking Saudi assurances that they are ready to make up for Iranian crude lost from the market should increased international sanctions on Iran impact its oil exports. Ghasemi said he spoke to Naimi Tuesday and Naimi "rejects" the notion "that he wants to replace Iranian crude if Iran faces sanctions" affecting crude sales or production."

"We had a meeting about the bilateral relations with Naimi," he told reporters minutes before the ministerial meeting was to start. "It was very positive, we think, and friendly."

Naimi was circumspect, dismissing the issue as "speculative."

With the OPEC meeting widely expected to agree to maintain present production levels of around 30 million barrels a day even before Wednesday's session began, the focus at the Vienna talks has turned to Iran-Saudi tensions.

Relations between Sunni Saudi Arabia and Shiite Iran have been traditionally cool as the two countries vie for regional influence and were additionally burdened in recent years over concerns Tehran may be working to make nuclear arms. Recent U.S. allegations of Iranian involvement in an alleged plot to kill the Saudi ambassador to Washington have worsened the chill.

Tehran has denied the allegations and is seeking to mend fences. Iranian Foreign Ministry spokesman Ramin Mehmanparast revealed Wednesday that Iran's intelligence chief visited Saudi Arabia and moves to refute the U.S. claims and convince Saudi Arabia that Washington and Israel are seeking to sow seeds of discord between them.

Intelligence Minister Heidar Moslehi was reported to have met the Saudi Crown Prince Nayef bin Abdel-Aziz Al Saud during the Tuesday visit. The prince is also the kingdom's interior minister.

In Vienna, Ghasemi said any move to sanction Iran's oil and refining industries — as contemplated by the European Union — "is not a very wise decision."

Saudi Arabia, OPEC's powerhouse, is already producing about 10 million barrels a day, upping their output by a daily 1.3 million barrels to account for about a third of OPEC's present output. They are the only OPEC nation with such spare capacity — and they could bridge temporary disruptions caused by any embargo on oil from Iran, which is now producing about 26 million barrels a day.

Jason Schenker, president of Prestige Economics, noted, however, that any embargo would not reduce the amount of oil on the market.

"If the Iranians can't sell to the Europeans, they sell it to China," he said. "Someone will buy that oil."

Even without an embargo, Iran wants the Saudis and their Gulf allies to cut back on their output. That's something the Saudis are unlikely to agree to. But both sides want to avoid new public rifts.

For OPEC, reaching agreement is perhaps even more important than what is agreed on. In June oil ministers disagreed publicly on how much oil to sell, with Saudi Arabia labeling it the worst ever meeting. This time, they are keen to paper over the cracks and repair OPEC's tattered image.

A joint stance is key for an organization that likes to see itself as the oil market's chief regulator — and which wants to avoid a repeat of the June meeting. With Iran and its allies rejecting a Saudi push to increase output and make up for lost Libyan supply at that gathering, the result was a free for all.

Supported by other Gulf members, the Saudis upped their production. Others also ignored quotas. And OPEC was left looking foolish.

Coming into Wednesday's meeting, OPEC was exceeding its three-year old production ceiling by 11 percent.

Ehsan Ul-Haq, senior market consultant at KBC Energy Economics, said Iranian willingness to compromise reflects Tehran's recognition "that they cannot do anything if they continue to oppose what the Saudis would like to have."

The Saudis, in turn, are unlikely to press for any formal increase in output that would risk another abortive meeting.

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Maggie Childs contributed to this report.